Market Overview

Eagle Bancorp Montana Earns $1.3 Million in the Second Quarter; Increases Regular Quarterly Cash Dividend to $0.0925 per Share and Renews Stock Repurchase Plan

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HELENA, Mont., July 24, 2018 (GLOBE NEWSWIRE) -- Eagle Bancorp Montana, Inc. (NASDAQ:EBMT), (the "Company," "Eagle"), the holding company of Opportunity Bank of Montana, today reported net income increased 132.6% to $1.3 million, or $0.24 per diluted share, in the second quarter of 2018 compared to $573,000, or $0.11 per diluted share, in the first quarter of 2018, and increased 25.0% compared to $1.1 million, or $0.27 per diluted share, in the second quarter of 2017.  Second quarter 2018 operating results were impacted by $131,000 of acquisition-related expenses, compared to $234,000 of acquisition-related expenses in the preceding quarter and no acquisition expenses in the second quarter of 2017.  In the first six months of 2018, net income increased 4.2% to $1.9 million, or $0.35 per diluted share, compared to $1.8 million, or $0.47 per diluted share, in the first six months of 2017.

Additionally, Eagle's board of directors increased its regular quarterly cash dividend to $0.0925 per share.  The dividend will be payable September 7, 2018 to shareholders of record August 17, 2018.  The current annualized yield is 1.92% based on recent market prices.

"Our expansion in our Montana markets continues to deliver strong loan growth and is supporting our strong net interest margin," stated Peter J. Johnson, President and CEO.  "Profitability in our second quarter was solid, and year-to-date earnings grew 4.2% compared to the first six months of 2017, reflecting the success of our completed acquisition with Ruby Valley Bank, as well as other growth initiatives we are implementing."

The acquisition, which was completed during the first quarter of 2018, added approximately $94 million in assets, $82 million in deposits and $55 million in gross loans and made Opportunity Bank the fifth largest Montana-based bank based on asset size. 

Second Quarter 2018 Highlights (at or for the three-month period ended June 30, 2018, except where noted)

  • Net income was $1.3 million, or $0.24 per diluted share.
  • Acquisition costs were $131,000 in the second quarter.
  • Purchase discount on loans from the Ruby Valley Bank Portfolio was $1.8 million at January 31, 2018 (the "acquisition date"), of which $1.4 million remains as of June 30, 2018.
  • The accretion of the loan purchase discount into loan interest income from the Ruby Valley Bank transaction was $425,000 in the second quarter, compared to zero in the preceding quarter.
  • Net interest margin improved 41 basis points to 4.18% in the second quarter, compared to 3.77% in the preceding quarter.
  • Revenues (net interest income before the provision for loan losses, plus non-interest income) increased 15.2% to $10.9 million, compared to $9.4 million in the second quarter a year ago.
  • Return on average assets was 0.65%.
  • Return on average equity was 5.83%.
  • Total loans increased 14.5% to $581.7 million at June 30, 2018, compared to $508.1 million a year earlier.
  • Commercial real estate loans increased 13.0% to $216.3 million at June 30, 2018, compared to $191.4 million a year earlier.
  • Total deposits increased 19.2% to $613.2 million, compared to $514.3 million a year ago.
  • Capital ratios remain well capitalized with a tangible common shareholders' equity ratio of 9.59% at June 30, 2018.
  • Declared quarterly cash dividend of $0.0925 per share.

Balance Sheet Results

Total assets increased 16.4% to $826.8 million at June 30, 2018, compared to $710.2 million a year ago, in large part due to the Ruby Valley Bank acquisition.  At March 31, 2018, total assets were $815.9 million.

"Loan production continues to grow at a healthy pace, increasing 2.6% in the second quarter, or 10.4%, on an annualized basis," said Johnson.  Total loans increased 14.5% to $581.7 million at June 30, 2018, compared to $508.1 million a year earlier and increased 2.6% compared to $567.0 million three months earlier.

Eagle originated $84.0 million in new residential mortgages during the quarter, excluding construction loans, and sold $73.6 million in residential mortgages, with an average gross margin on sale of mortgage loans of approximately 2.3%.  This production compares to residential mortgage originations of $50.9 million in the preceding quarter with sales of $49.0 million.

Commercial real estate loans increased 13.0% to $216.3 million at June 30, 2018, compared to $191.4 million a year earlier.  Residential mortgage loans increased modestly to $112.3 million, compared to $110.9 million a year earlier.  Commercial loans increased 25.3% to $70.0 million, home equity loans increased 7.9% to $53.2 million, residential construction loans increased 5.3% to $31.0 million and construction and development loans decreased 18.3% to $36.6 million, compared to a year ago.  Loans related to agriculture increased as a result of the acquisition.

Total deposits were $613.2 million at June 30, 2018, a 2.0% decrease compared to $625.9 million at March 31, 2018, and a 19.2% increase compared to $514.3 million a year ago.  At June 30, 2018, checking and money market accounts represent 55.7%, savings accounts represent 17.7%, and CDs comprise 26.6% of the total deposit portfolio.

Shareholders' equity increased modestly to $91.8 million at March 31, 2018, compared to $90.9 million three months earlier and increased 47.8% compared to $62.1 million one year earlier.  Tangible book value was $14.28 per share at June 30, 2018, compared to $14.09 per share at March 31, 2018, and $14.37 per share a year earlier. 

Operating Results

"Our net interest margin increased 41 basis points compared to the preceding quarter and 52 basis points compared to the second quarter a year ago, in part due to rising interest rates which produced higher yields on loans," said Johnson.  "In addition, the interest accretion on purchased loans totaled $425,000 and resulted in a 23 basis point increase in the NIM during the second quarter, compared to no interest accretion in the preceding quarter."  Eagle's net interest margin was 4.18% in the second quarter, compared to 3.77% in the preceding quarter, and 3.66% in the second quarter a year ago.  In the first six months of 2018, Eagle's net interest margin was 3.91% compared to 3.66% in the first six months a year ago.  The investment securities portfolio increased to $154.3 million at June 30, 2018, compared to $123.2 million a year ago, which increased the average yields on earning assets to 4.52% from 4.27% a year ago. 

Fueled by solid loan growth and expanding yields on portfolio loans, Eagle's second quarter revenues increased 14.3% to $10.9 million, compared to $9.5 million in the preceding quarter and increased 15.2% when compared to $9.4 million in the second quarter a year ago.  Year-to-date, revenues increased 12.5% to $20.4 million, compared to $18.1 million in the first six months of 2017.  Net interest income before the provision for loan loss increased 14.1% to $7.8 million in the second quarter compared to $6.8 million in the preceding quarter, and increased 32.8% compared to $5.9 million in the second quarter a year ago.  In the first six months of 2018, net interest income increased 29.0% to $14.7 million, compared to $11.4 million in the first six months of 2017.

With solid gains from loan sales, noninterest income increased 15.1% to $3.1 million in the second quarter, compared to $2.7 million in the preceding quarter, but decreased 13.6% compared to $3.6 million in the second quarter a year ago, when residential mortgage loan originations were very robust.  The net gain on sale of mortgage loans totaled $1.7 million in the second quarter, compared to $1.4 million in the preceding quarter and $2.3 million in the second quarter a year ago.  Year-to-date, noninterest income was $5.8 million, compared to $6.8 million in the first six months of 2017.

Second quarter noninterest expenses were $9.2 million compared to $8.3 million in the preceding quarter and $7.6 million in the second quarter a year ago.  Acquisition costs totaled $131,000 for the current quarter, compared to $234,000 for the preceding quarter.  There were no acquisition costs in the second quarter one year ago.  In the first six months of the year, noninterest expenses totaled $17.6 million, compared to $15.1 million in the first six months of 2017.

For the second quarter of 2018, Eagle recorded $293,000 in income tax expense for an effective tax rate of 18.0%, reflecting the new lower corporate tax rates. 

Credit Quality

Asset quality continues to improve with lower balances of nonperforming assets and gradual increase in reserves.  The allowance for loan losses represented 370.7% of nonaccrual loans at June 30, 2018, compared to 352.3% three months earlier and 309.2% a year earlier.  The second quarter provision for loan losses was $24,000, compared to $502,000 in the preceding quarter and $302,000 in the second quarter a year ago. 

Total OREO and other repossessed assets decreased to $457,000 at June 30, 2018, compared to $639,000 at March 31, 2018 and $493,000 a year ago.  Nonperforming assets (NPAs), consisting of nonaccrual loans, OREO and other repossessed assets, loans delinquent 90 days or more, and restructured loans, decreased to $2.1 million at June 30, 2018 or 0.26% of total assets, compared to $2.4 million, or 0.29% of total assets three months earlier and $2.2 million, or 0.31% of total assets a year earlier. 

Nonperforming loans (NPLs) were $1.7 million at June 30, 2018, which was unchanged from both three months earlier and a year earlier. 

Net charge-offs were $4,000 in the second quarter, compared to $122,000 in the preceding quarter and $152,000 in the second quarter a year ago.  The allowance for loan losses was $6.2 million, or 1.06% of total loans at June 30, 2018, compared to $6.1 million, or 1.08% of total loans at March 31, 2018 and $5.2 million, or 1.03% of total loans a year ago.

Capital Management

Eagle Bancorp Montana continues to be well capitalized with the ratio of tangible common shareholders' equity to tangible asset of 9.59% at June 30, 2018.  (Shareholders' equity, less goodwill and core deposit intangible to tangible assets).

"Our ongoing ability to access the capital markets on favorable terms is one of the primary strengths of our franchise," said Johnson.  On October 13, 2017, Eagle successfully completed a public offering of its common stock, and issued 1,189,041 shares and received approximately $20.1 million in net cash proceeds.

Stock Repurchase

Eagle announced that its Board of Directors has authorized the repurchase of up to 100,000 shares of its common stock, representing approximately 1.8% of outstanding shares. Under the plan, shares may be purchased by the company on the open market or in privately negotiated transactions. The extent to which the company repurchases its shares and the timing of such repurchase will depend upon market conditions and other corporate considerations.

About the Company

Eagle Bancorp Montana, Inc. is a bank holding company headquartered in Helena, Montana and is the holding company of Opportunity Bank, a community bank established in 1922 that serves consumers and small businesses in Montana through 17 banking offices. Additional information is available on the bank's website at www.opportunitybank.com.  The shares of Eagle Bancorp Montana, Inc. are traded on the Nasdaq Global Market under the symbol "EBMT."

Forward Looking Statements

This release may contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and may be identified by the use of such words as "believe," "will"' "expect," "anticipate," "should," "planned," "estimated," and "potential." These forward-looking statements include, but are not limited to statements of our goals, intentions and expectations; statements regarding our business plans, prospects, merger with Ruby Valley Bank, growth and operating strategies; statements regarding the asset quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. These factors include, but are not limited to, changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; loan demand or residential and commercial real estate values in Montana; our ability to continue to  increase and manage our commercial real estate, commercial business and agricultural loans; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; other economic, governmental, competitive, regulatory and technological factors that may affect our operations; the effect of our acquisition of Ruby Valley Bank including the failure to achieve expected revenue growth and/or expense savings, the failure to effectively integrate their operations and the diversion of management time on issues related to the integration. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. All information set forth in this press release is current as of the date of this release and the company undertakes no duty or obligation to update this information.

                 
Balance Sheet                
(Dollars in thousands, except per share data)     (Unaudited) (Unaudited) (Unaudited)  
            June 30, March 31, June 30,  
              2018     2018     2017    
                   
Assets:                
  Cash and due from banks       $   7,583   $   7,679   $   7,244    
  Interest bearing deposits in banks           1,397       1,641       1,797    
  Federal funds sold             -        3,591       -     
                    Total cash and cash equivalents       8,980       12,911       9,041    
  Securities available-for-sale, at market value         154,265       158,417       123,191    
  FHLB stock             4,559       3,704       4,841    
  FRB stock             2,019       2,019       871    
  Investment in Eagle Bancorp Statutory Trust I         155       155       155    
  Loans held-for-sale             11,700       8,979       16,206    
  Loans:                
    Real Estate loans:              
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